Hovnanian Enterprises is about to release earnings. Ponder the Bear Case Scenario:
The stock fell from mighty heights and still trades below $5. Is there anything more that can hammer this one further into the ground. The short ratio is around 11.66% give or take a margin call or two.
No one is looking at a major upswing in housing. Many mortgages are still under water. Interest rates are at historical lows so mortgage affordability is not a hindrance. Unemployment is not recovering the way we would want it to. Jobs that are being created are low wage which means no chance for mortgage.
One starts to wonder if this is not a candidate for privatization. Buy cheap, fix a few things, wait for market metrics to improve then sell big. Some of the internal financials seem to be resolving themselves but Hovnanian is still very dependent on external factors which it cannot control.
Essentially the stock is an extended commodity and or interest rate play. As rates go up more mortgages will default and new housing stock will not be needed.
The funds that own the stock are primarily ETF’s that need to be there. However as the stock continues to get hammered it may drop far enough to lose its trading status on stock exchanges. Then the stampede will start again as everyone exits and a very deep value proposition presents itself.
George Gutowski writes from a caveat emptor perspective.